By Zakiye Bahrami
Global oil and Asian product market, November & December
OIL HITS 5-YEAR LOWS SINCE 2008 CRISIS
- December average for Dubai crude fell to near $67/bbl; while Brent slipped below $71/bbl.
- OPEC decided to maintain output ceiling to counter U.S. shale oil boom.
Just when the market was thinking that a 4-year low for crude oil was bad enough, oil market hit a 5-year low after the OPEC meeting on 27 November. Oil has been falling since June 2014. During December, Prices continued to fall to reach its lowest since 2008 crisis as supplies overwhelmed demand. Slower economic growth in China and Europe made the demand outlook gloomy. Slower than expected growth in China's manufacturing sector may add further downward pressure on oil. China's official Purchasing Managers' Index (PMI) slipped to 50.3 in November, a government study showed last month.
The Organization of the Petroleum Exporting Countries had been expected to try to rebalance the market by cutting the production, but agreed to maintain existing production targets.
According to the news, Oil-producing countries from Iraq to Nigeria were revising their 2015 budgets to reflect lower prices.
Asian Product Markets
In Singapore products' market- leader product market in Asia- the mean of most products prices, decreased in line with the fall of crude prices (see graph 2).
Some of the changes in product prices are due to crude price changes. Hence, in order to investigate product market fundamental and its performance, it is necessary to look at product price changes in comparison with crude price changes. Naphtha and fuel oil market improved during the reporting period while gasoline fundamentals was weak (see graph 3).
Products market fundamentals in brief
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December 2014 |
Light Distillates Products |
Middle Distillates Products |
Heavy Products |
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Gasoline |
Naphtha |
Gasoil |
Jet Fuel |
Fuel Oil 180 |
Fuel Oil 180 |
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↓ |
↑ |
↑ |
↑ |
↑ |
↑ |
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(Upward arrow: strength, downward arrow: weakness)
Light Distillates (gasoline, naphtha)
Asian naphtha market witnessed some correction During Nov. and Dec. 2014 compared to the dismal performance over October. Especial support was seen from the beginning of December. Naphtha market in Europe was moving up, as a result arbitrage volumes from Europe to Asia waned. On the demand side, end of year buying interest especially in China helped the market to be strong. looking ahead, Japanese demand for naphtha could diminish as soon as next year, following a government announcement encouraging petchem players to close some ethylene-making capacity. Meanwhile, the LPG prices during winter season is expected to go up and demand of naphtha as substitution of LPG may increase. Therefore, the outlook for naphtha market is not clear. looking historically at naphtha trend, the market might face some downward movements from the beginning of new year since the end of each year is usually boom days of naphtha market.
Gasoline market was slightly weakening during November and December. Higher exports from China, Japan, India and Middle East alleviated the market. In Malaysia and Indonesia, fuel subsidies is planned to be removed and this may dent gasoline demand.
Middle Distillates (gasoil, jet fuel)
Middle distillates products performed strong during reporting month. The strength in middle distillates typically happen over Q4 of each year. This up-tick was partly driven by firmer buying from China, the Philippines and Indonesia seasonally.
Regional jet fuel demand remains fairly healthy, as air carriers have recently noted growing domestic traffic, while additional heating requirements may also be playing a role in elevated jet fuel market. Tight supply in the region was mostly because of decrease in Japanese and Chinese jet fuel export. The export of Japan fell as the country rose its production of kerosene in expense of jet fuel production. In China, domestic consumption of jet fuel prevented the country from more export.
Fuel Oil
Supply tightness in Singapore fuel oil market caused fuel oil crack – differential between fuel oil and Dubai prices- to reach to the highest level since June 2013. Surge in bunker demand, as well as some firm buying interest from South Korea were the driving factors. Supply tightness happened on the back of market mistrust following the bankruptcy of OW Bunker. Since Danish bunker fuel supplier OW Bunker collapsed, ship owners looked to buy product from alternative ports to avoid the uncertainty in Singapore credit markets. The outlook for the market is weaker compared to the current situation because things could soon change and these implications would only be short-lived, as other players would eventually jump in.